Who-Took-the-Money Spat Roils Kenya as Bonds Lose Most in World

  • Losses mount amid claims Eurobond proceeds were misspent
  • Kenya reviews borrowing plans, says all funds accounted for

Kenya is starting to count the cost of a dispute over what happened to the proceeds of the nation’s $2.75 billion Eurobond sale last year.

The African nation’s dollar securities have lost investors more money than the debt of any other emerging market since the end of October, when the finance ministry first responded to opposition leader Raila Odinga’s allegation that more than 140 billion shillings ($1.4 billion) has gone missing. The government says the former prime minister’s Coalition for Reforms and Democracy, known as CORD, is misreading the Treasury’s accounts and all the money is accounted for.

“A significant portion of the increase in yield that we’ve seen recently has been due to the ongoing controversy regarding the management of the bonds,” John Ashbourne, an Africa economist at Capital Economics in London, said on Tuesday. “Investors would want to see both a proper investigation into what happened to the money -- which might result in a totally innocent explanation, I should stress that -- and then also evidence that the government is improving oversight and management of expenditure.”

The altercation risks undermining President Uhuru Kenyatta’s efforts to reverse Kenya’s image as one of the world’s most corrupt countries as his government invests in infrastructure such as energy, roads, rail and ports to boost growth in East Africa’s largest economy. The Treasury is now reviewing foreign-borrowing plans because the issue has been politicized, according to Kamau Thugge, principal secretary of the department.

Yields on the country’s $2 billion of notes due June 2024 have climbed 107 basis points in the past month to 921 percent in London as of 12:32 p.m. in London on Thursday, after reaching an all-time high of 9.23 percent on Tuesday. The nation’s debt has lost 4.9 percent since the end of October, the biggest decline among 61 emerging markets tracked by Bloomberg.

‘Good Story’

Investors are also selling African foreign-currency debt in anticipation of an increase in U.S. interest rates and as currencies from Kenya to Ghana plummet against the dollar. A Bloomberg index of dollar debt of African nations is down 2.3 percent since the beginning of November.

“Kenya is still a good story, but when you get these types of headlines out there, at times it can weigh on the credit, and it has this time,” Kevin Daly, a money manager at Aberdeen Asset Management Plc, said by phone from London. “It’s also part of a broader sell-off.”

Kenya’s public prosecutor last week ordered police and anti-graft investigators to probe the opposition’s allegation that funds have gone missing. CORD leader Odinga was summoned by the anti-corruption agency to discuss his allegations, his party said in an e-mailed statement on Tuesday. He had previously turned down an invitation from the Treasury to scrutinize documents on the Eurobond and asked officials instead to make the paperwork public.

Graft Crackdown

Thugge said the Treasury collected the equivalent of 250 billion shillings from the sale of the Eurobonds, from which it spent 53.3 billion shillings to repay a syndicated loan. The remaining funds were disbursed to ministries to finance projects over two financial years, he said. The opposition party on Thursday called on the government to present a list of projects financed by the bonds.

Last month, Kenyatta fired five cabinet secretaries who were suspended this year after being caught up in graft investigations. The cabinet shuffle took place the day after Kenyatta deemed corruption a threat to national security. Kenya ranked 145 out of 177 nations on Berlin-based Transparency International’s 2014 Corruption Perception Index, which measures perceived corruption around the world.

“It won’t have escaped people’s attention that Kenya has seen a string of scandals this year,” Ashbourne said. “It adds to the impression that corruption is a really serious issue throughout the country. President Kenyatta does seem to be committed, rhetorically, to doing something about this but investors -- and Kenyans, I’d imagine -- will want to see some concrete action.”

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